Ahead of the US Federal Reserve meeting and in light of new concerns regarding the development of oil prices and US Treasury bonds, the gold price came under initial pressure on Tuesday. Uncertainty surrounding the future direction of US monetary policy in particular is likely to weigh on risk sentiment. The prospect of rising capital market interest rates globally increases the opportunity costs of holding gold, which can detract from the attractiveness of non-yielding assets such as gold.
Gold (XAU/USD)
Fed interest rate decision in focus for Wednesday evening
The Fed benchmark interest rate decision is on the agenda for Wednesday evening (8:00 PM), followed by the FOMC press conference with Kevin Warsh (8:30 PM), which needs to be examined for monetary policy clues.
By now, the market is likely to have almost fully priced in an interest rate hike. 92.7 percent of market participants expect an upward rate step totaling a quarter of a percentage point. In contrast, 7.3 percent expect a rate pause. The rate band itself currently stands at 3.50 to 3.75 percent.
10-year US Treasury bonds cross 5 percent threshold for the second time since the 2007 financial crisis
The rise in the yield on 10-year US Treasury bonds above the psychologically significant 5 percent mark has caused a stir around the globe. For the second time since the 2007 financial crisis, yields are thus above the aforementioned mark, most recently in October 2023. Investors expect the US Federal Reserve to raise interest rates for the first time in over three years. At the same time, futures market prices indicate that the US Federal Reserve could initiate three further interest rate hikes of 25 basis points each over the course of the coming year.
Last week, the US Treasury Department announced it would buy back three times as many long-term US government bonds as originally planned. Scott Bessent had announced that the government would buy US bonds to stabilize their price and halt the recent rise in yields, as this is increasing the government's borrowing costs.
10-year US Treasury bonds
Oil price (West Texas Intermediate)
